USD/CAD eases after hitting fresh six-week high, bulls retain control above 1.2800 mark

• USD/CAD attracted some dip-buying on Wednesday and shot to a fresh multi-week high.
• Aggressive Fed rate hike bets pushed the USD to a two-year top and remained supportive.
• An uptick in oil prices did little to benefit the loonie or hinder the intraday positive move.

The USD/CAD pair rallied around 80 pips from the daily low and climbed to the 1.2845-1.2850 region, or a fresh six-week high during the first half of the European session.

Following an early dip to the 1.2780-1.2775 region, the USD/CAD pair regained traction on Wednesday and turned positive for the fifth successive day amid the prevalent US dollar buying interest. Rising bets for a more aggressive policy tightening by the Fed continued acting as a tailwind for the buck, which was further underpinned by the deteriorating global economic outlook.

Investors now expect the Fed to raise interest rates by 50 bps at each of its next four meetings in May, June, July and September. The expectations were reaffirmed by the recent hawkish comments by influential FOMC members, including Fed Chair Jerome Powell. prolonged Russia-Ukraine conflict and the latest COVID-19 outbreak in China have raised fears of stalling global growth.

The supporting factor, to a larger extent, helped offset an uptick in crude oil prices, which tend to benefit the commodity-linked loonie. Poland and Bulgaria said that Russia will stop supplying gas on Wednesday. This, in turn, fueled worries that Russia could follow through on its threat to halt gas flows to countries that refuse to pay for fuel in roubles and cut off supplies to Europe. This, along with hopes for more Chinese economic stimulus, underpinned crude oil prices.

Nevertheless, the emergence of dip-buying and acceptance above the 1.2800 mark favours bullish traders. Hence, some follow-through strength back towards testing the YTD peak, around the 1.2900 round figure, remains a distinct possibility. Market participants now look forward to second-tier US economic data, which, along with the broader market risk sentiment, will influence the USD. Traders will also take cues from oil price dynamics to grab short-term opportunities around the USD/CAD pair.

Technical levels to watch